Brea plc, which has a financial year end of 31 December, has an item of plant which meets the criteria to be classified as held for sale at 1 July 20X9. The original cost of the asset was $120,000 with an estimated useful life of 10 years and, at 1 January 20X9, had accumulated depreciation of $36,000. At 1 July 20X9 the fair value of the plant is $50,000 with costs to sell estimated at $4,000. a) Show how this asset would be accounted for in the 20X9 financial statements. b) Suppose that the plant is still held for sale at 31 December 20X9, and, at this date, the fair value and estimated costs to sell are respectively: (i) $45,000 and $4,000. (ii) $55,000 and $5,000 For(i) and (ii) show how the changes in fair value less costs to sell would be accounted for in the books of accounts
Brea plc, which has a financial year end of 31 December, has an item of plant which meets the criteria to be classified as held for sale at 1 July 20X9. The original cost of the asset was $120,000 with an estimated useful life of 10 years and, at 1 January 20X9, had
a) Show how this asset would be accounted for in the 20X9 financial statements.
b) Suppose that the plant is still held for sale at 31 December 20X9, and, at this date, the fair value and estimated costs to sell are respectively:
(i) $45,000 and $4,000.
(ii) $55,000 and $5,000
For(i) and (ii) show how the changes in fair value less costs to sell would be accounted for in the books of accounts
This question deals with the concept of asset held for sale and impairment loss.
When asset classified for held for sale then at the initial measurement if impairment is there then it needs to be recorded.
After that at each period end, it needs to be remeasured.
If any period end, asset fair value less cost to sales decrease below the carrying value then it needs to record at each period.
And in case asset value increase at the period end compared to initial measurement then initial impairment loss needs to be reversed.
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